For the last 20 years, valuations on the S&P 500 have correlated pretty well with the 25-54 year old male participation rate in the US. The now 13-year old structural bear market in the US is easy to see. The recent turn down in this participation rate suggest caution on equity valuations.
Following a disappointing Industrial New Orders report yesterday, Germany’s Industrial Production posted a better than expected gain for the month of August. Will the relationship with PMI Manufacturing hold?
One data point does not make a trend, but we will be watching to see if the recent down tick in Australian consumer confidence is leading the US manufacturing ISM lower.
Mortgage applications have only slightly bounced after plunging from May to September.
If the Yen/USD keeps strengthening, the odds of Japanese stocks rising appear slim.
Over the last five years, the CBOE Volatility Index (VIX) has had an 87% correlation with high yield spreads. If the VIX keeps rising, high yield spreads are likely to widen.
We divide the MSCI World index into cyclical (including materials, industrials, technology and consumer discretionary, financials and energy) and counter-cyclical baskets (including consumer staples, health care, telecom, utilities). The relative performance of cyclicals vs. counter-cyclicals generally improves when the economic news is improving and contracts when it is deterioratinig.
S&P 500 futures fall to 10 day lows this morning. The VIX is close to breaking out above 20.